Correlation Between Outokumpu Oyj and Metsa Board

Can any of the company-specific risk be diversified away by investing in both Outokumpu Oyj and Metsa Board at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Outokumpu Oyj and Metsa Board into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Outokumpu Oyj and Metsa Board Oyj, you can compare the effects of market volatilities on Outokumpu Oyj and Metsa Board and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Outokumpu Oyj with a short position of Metsa Board. Check out your portfolio center. Please also check ongoing floating volatility patterns of Outokumpu Oyj and Metsa Board.

Diversification Opportunities for Outokumpu Oyj and Metsa Board

-0.12

Correlation Coefficient

Outokumpu Oyj  Metsa Board

Good diversification

The 3 months correlation between Outokumpu and Metsa is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Outokumpu Oyj and Metsa Board Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metsa Board Oyj and Outokumpu Oyj is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Outokumpu Oyj are associated (or correlated) with Metsa Board. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metsa Board Oyj has no effect on the direction of Outokumpu Oyj i.e., Outokumpu Oyj and Metsa Board go up and down completely randomly.

Pair Corralation between Outokumpu Oyj and Metsa Board

Assuming the 90 days trading horizon Outokumpu Oyj is expected to generate 1.07 times more return on investment than Metsa Board. However, Outokumpu Oyj is 1.07 times more volatile than Metsa Board Oyj. It trades about 0.12 of its potential returns per unit of risk. Metsa Board Oyj is currently generating about -0.01 per unit of risk. If you would invest  318.00  in Outokumpu Oyj on November 29, 2024 and sell it today you would earn a total of  51.00  from holding Outokumpu Oyj or generate 16.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Outokumpu Oyj  vs.  Metsa Board Oyj

Outokumpu Oyj

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Outokumpu Oyj are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Outokumpu Oyj demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Metsa Board Oyj

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metsa Board Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Metsa Board is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Outokumpu Oyj and Metsa Board

The main advantage of trading using opposite Outokumpu Oyj and Metsa Board positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Outokumpu Oyj position performs unexpectedly, Metsa Board can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Metsa Board will offset losses from the drop in Metsa Board's long position.

The idea behind Outokumpu Oyj and Metsa Board Oyj pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.